First National Financial Corporation reports first quarter 2014 results

TORONTO, April 29, 2014 /CNW/ - First National Financial Corporation (TSX: FN) (TSX:FN.PR.A) (the "Company" or "FNFC") today announced its financial results for the three months ended March 31, 2014. The Company derives virtually all of its earnings from its wholly-owned subsidiary, First National Financial LP ("FNFLP" or "First National.")

First Quarter Summary

• Mortgages under administration ("MUA") up 12% year over year to $77.0 billion 
• Mortgage originations higher by 5% to $2.5 billion from $2.4 billion
• Revenue up 19% to $172.7 million from $145.2 million
• Pre-FMV EBITDA⁽¹⁾ up 12% to $41.4 million from $36.9 million
• Income before income taxes of $31.3 million compared to $31.2 million
• Net income of $23.1 million ($0.35 per common share) compared to $23.0 million ($0.36 per common share)
• Dividends declared per common share of $0.36 up from $0.33 per share

"First National opened 2014 as anticipated, with solid performance in a Canadian real estate and housing market where activity levels reflected first quarter seasonality," said Stephen Smith, Chairman, President and Chief Executive Officer. "Despite a harsh winter and some increased competition, the Company surpassed last year's origination levels and responded well to its mortgage renewal opportunities, achieving characteristically strong renewal rates.  First National also established new first quarter records for both revenue and Pre-FMV EBITDA and remained very profitable despite a large loss on financial instruments due to a decrease in bond yields. "

"In the first quarter, single family originations were up 13% over the opening quarter of 2013 when Government measures constrained market activity," said Moray Tawse, Executive Vice President. "This marks a continued recovery in volumes that started in the second quarter of last year and reflects continued housing market demand. Although we had hoped to originate even more residential mortgages in the quarter, we are satisfied with volumes in the context of the market backdrop and intensified competition in mortgage rates. In the commercial segment, origination levels were 11% below the opening quarter of 2013 although at $717 million, volumes were in line with expectations."

				Quarter ended
				March 31, 2014	March 31, 2013
For the Period			($ 000's)
Revenue				172,705	145,228
Income before income taxes				31,261	31,236
Pre-FMV EBITDA ^(1)				41,388	36,864
At Period end
Total assets				21,683,307	13,224,456
Mortgages under administration				76,974,628	68,462,517

(1)

This non-IFRS measure adjusts income before income taxes by adding back expenses for amortization of intangible and capital assets but it also eliminates the impact of changes in fair value by adding back losses on the valuation of financial instruments and deducting gains on the valuation of financial instruments.

Q1 2014 Summary

First National's MUA grew to $77.0 billion at March 31, 2014 from $68.5 billion a year earlier, an increase of 12%.  Between December 31, 2013 and March 31, 2014, MUA grew approximately 2%, an annualized increase of 7%.

First quarter single-family mortgage originations grew 13% to $1.8 billion from $1.6 billion in the first quarter of 2013. First quarter commercial segment origination volumes were $717 million, off 11% from a year ago. In total mortgage originations grew 5% year over year. Of the $3.2 billion of originations and renewals in the first quarter of 2014, $1.5 billion were originated for securitization purposes.

Revenue increased 19% to $172.7 million from $145.2 million in the same period of 2013 primarily reflecting higher interest revenue on the larger portfolio of mortgages pledged under securitization. This increased revenue by over $30 million or 21% year over year.

Income before income taxes was flat to last year at $31.3 million compared to $31.2 million due to falling interest rate yields in the bond market which produced $8.2 million of losses on financial instruments in the most recent period and $3.4 million of losses a year ago.

Pre-FMV EBITDA which eliminates losses and gains on financial instruments increased 12% to $41.4 million from $36.9 million a year ago. This increase reflected higher net interest on securitized mortgages, and increased placement fees, net of broker fees.

Determination of Adjusted Cash Flow and Payout Ratio

The Board declared $0.36 per common share in dividends in the first quarter of 2014 (annualized rate of $1.44), compared to $0.33 in the first quarter of 2013 ($1.32 annualized). Due to the payment of previous year's accrued expenses, the first quarter payout ratio, expressed as a percentage of adjusted cash flow available for common shares, typically exceeds 100%. Accordingly, the Company's first quarter 2014 payout ratio was 331% as the Company invested $16.0 million (approximately $0.26 per common share) in working capital to cover employee bonus payments and corporate tax installments. Without this working capital investment, the first quarter 2014 payout ratio was approximately 96%. The ratio of dividends declared on common shares to after-tax earnings excluding fair value adjustments was 75%, which the Company considers a more accurate measurement of its long-term dividend payout ratio.     

Determination of Adjusted Cash Flow and Payout Ratio

				Quarter ended
				March 31, 2014		March 31,  2013
For the Period			($ 000's)
Cash provided by (used in) operating activities				(49,686)	(191,503)
Add (deduct):
Change in mortgages accumulated for
sale or securitization between periods				59,836	207,402
Additions to property, plant and equipment				(2,494)	(1,299)
Adjusted Cash Flow ^(1)				7,656	14,600
Less: cash dividends on preference shares				(1,163)	(1,163)
Adjusted Cash Flow available for common shareholders				6,493	13,437
Adjusted Cash Flow per Common Share ($/share) ^(1)				0.11	0.22
Dividends declared on Common Shares				21,488	19,989
Dividends declared per Common Share ($/share)				0.36	0.33
Payout Ratio				331%	149%

Note:

(1)	These non-IFRS measures adjust cash provided by (used in) operating activities by accounting for changes between periods in mortgages accumulated for sale or securitization and mortgage securitization activity. 2013 figures have been restated to conform to the current calculation.

Outlook

For 2014, the Company anticipates higher origination volumes in the second and third quarter, compared to the first quarter as the spring and summer seasons typically lead to more favorable buying conditions. This growth will be moderated by a weaker real estate market and continuing price competition in the single-family sector. Spreads earned on securitizations are narrower than they have been in the past several quarters. 

The Company anticipates the low interest rate environment will continue to keep mortgage affordability at favourable levels. By realizing on the significant renewal opportunities available in upcoming quarters and managing its partnerships with institutional customers, the Company will continue to focus on sustainable profitability. Despite modest new origination targets, management expects to continue to capitalize on mortgage renewals and to generate cash flow from its almost $18 billion portfolio of mortgages pledged under securitization in order to maximize the Company's financial performance. 

Q1 Conference Call and Webcast

April 30, 2014 10 a.m. ET

Participant Numbers 416-644-3416 800-814-4860

The audio of the conference call will be webcast live and archived on First National's website at www.firstnational.ca. A question and answer session for analysts and institutional investors will be held following management's presentation.

A taped rebroadcast will be available to listeners until 12 a.m. on May 6, 2014. To access the rebroadcast, please dial 416-640-1917 or 877-289-8525 and enter passcode 4679986 followed by the number sign.

Complete consolidated financial statements for the Company as well as management's discussion and analysis are available at www.sedar.com and at www.firstnational.ca.

About First National Financial Corporation
First National Financial Corporation (TSX: FN, TSX: FN.PR.A) is the parent company of First National Financial LP, a Canadian-based originator, underwriter and servicer of predominantly prime residential (single-family and multi-unit) and commercial mortgages. With $77 billion of mortgages under administration, First National is Canada's largest non-bank originator and underwriter of mortgages and is among the top three in market share in the mortgage broker distribution channel.  For more information, please visit www.firstnational.ca.

*Non-GAAP Measures
The Company uses IFRS as its accounting framework. IFRS are generally accepted accounting principles (GAAP) for Canadian publically accountable enterprises for years beginning on or after January 1, 2011. The Company also refers to certain measures to assist in assessing financial performance. These "non-GAAP measures" such as "Pre-FMV EBITDA", "Adjusted Cash Flow," and "Adjusted Cash Flow per Share" should not be construed as alternatives to net income or loss or other comparable measures determined in accordance with GAAP as an indicator of performance or as a measure of liquidity and cash flow. Non-GAAP measures do not have standard meanings prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers.

Forward-Looking Information
Certain information included in this news release may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as "may", "will, "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management's future outlook and anticipated events or results, and may include statements or information regarding the future financial position, business strategy and strategic goals, product development activities, projected costs and capital expenditures, financial results, risk management strategies, hedging activities, geographic expansion, licensing plans, taxes and other plans and objectives of or involving the Company. Particularly, information regarding growth objectives, any future increase in mortgages under administration, future use of securitization vehicles, industry trends and future revenues is forward-looking information. Forward-looking information is based on certain factors and assumptions regarding, among other things, interest rate changes and responses to such changes, the demand for institutionally placed and securitized mortgages, the status of the applicable regulatory regime and the use of mortgage brokers for single family residential mortgages. This forward-looking information should not be read as providing guarantees of future performance or results, and will not necessarily be an accurate indication of whether or not, or the times by which, those results will be achieved. While management considers these assumptions to be reasonable based on information currently available, they may prove to be incorrect. Forward-looking information is subject to certain factors, including risks and uncertainties listed under ''Risk and Uncertainties Affecting the Business'' in the MD&A, that could cause actual results to differ materially from what management currently expects. These factors include reliance on sources of funding, concentration of institutional investors, reliance on relationships with independent mortgage brokers and changes in the interest rate environment. This forward-looking information is as of the date of this release, and is subject to change after such date. However, management and First National disclaim any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required under applicable securities regulations.

SOURCE: First National Financial Corporation

Robert Inglis, Chief Financial Officer, First National Financial Corporation, Tel: [phone], Email: [email protected]; Ernie Stapleton, President, Fundamental Creative Inc., Tel: [phone], Email: [email protected]